Should I Invest In High Rental Yield Or High Capital Growth Properties? (Ep213)

Hey guys Ryan and Toby here from onproperty.com.au
and today I’m answering your questions. Today I’m going to be talking about whether or not
you should go after a high yield properties first or if you should go after high capital
growth properties first. Thanks for tuning in, I appreciate everyone that is sending
in your questions, I guarantee that I will answer your question in a video if you send
one through but it’s just going to take time to get there because I’ve got about 30 or
40 questions that I’m going through. Today’s question is the second question from
Maria; we answered the first one in yesterday’s episode which was about dual occupancy properties
in Brisbane. So today the question is, “I’ve noticed that a high yield property usually
has lower capital growth. Should we go for high yield first or aim for high growth first?”
Now, I would like to know more details about the high yield properties that you have looked
at, why you assume that they have lower capital growth. But I think the fact of the matter
isn’t, it is quite well established that a lot of the positive cash flow properties out
there don’t have the high capital growth associated with negatively geared properties.
We look at the Australian market as a whole. There are way more negatively geared properties,
so it’s much easier for someone to say what I can find negatively geared property that’s
going to deliver high capital growth. Now negative gearing doesn’t guarantee capital
growth, there are so many people who invest in negatively geared properties and don’t
experience the capital growth that they want. Their property goes backwards, it stays stagnant
or it moves slowly but people just don’t seem to look at that and the fact that the market
is made up of a lot of negatively geared properties that aren’t really growing. But then obviously
there are pockets and they’re highly negatively geared and growing really fast and there are
pockets of positive cash flow that aren’t growing at all. But then in that mix you do
have positive cash flow properties in areas that are growing but it is very difficult
to find out those particular areas. So in terms of the question, “should we go
for high yield first or aim for high growth first?” The answer is it depends on your situation,
depends on your financial goals and also depends on how you’re doing financially at the moment
and what your plan is to move forward towards financial freedom or whatever goal it may
be. If you’re on an extremely low income and you’re just kind of scraping by you just save
your deposit or you’re getting it as a gift, well maybe you can’t invest in a negatively
geared property and you need to go after high yield whether or not it’s going to generate
growth or not because you couldn’t afford to make the repayments yourself. So you needed
to be positively geared so that someone else is making those repayments or you may be in
a situation where you’re earning $400,000 a year you are paying 40-odd% in tax, whatever
that highest tax bracket is 46% or something like that and you want to save some tax and
get that growth and so you can save these deposits really quickly. You can get the growth
that you want and you can get a tax offsets as well and so the situation looks so different
for those different types of people. So I think instead of asking either or, I
would try and find both and rather than just looking for a property that positive cash
flow that’s in an area that’s growing I would try and hone my research skills to find an
area that I’m pretty happy with and I think that will grow in value at least will remain
fairly steady from an economic standpoint and a population standpoint. So find the area
but know that within that area that there are positive cash flow properties to be found
and I have talked about this I can’t remember which episode it was but another relative
question talking about a similar sort of thing. Basically I would narrow it down, find a good
suburb or a couple good suburbs and then I would get really granular with my research
and look at all the properties available in those suburbs.
What I would be looking for is a property that I can add value to. Most people go into
the market and they just want the market to go up they want to make money by the market
going up. It’s the same as people investing in the stock market and they just wanted to
go up in value. They don’t want to do anything to make that business grow because really
in the stock market you don’t have any power. But the thing I love about property is that
you can have that power to make change and to improve your property. Now that maybe through
renovations or that maybe through better marketing so your property rents for a higher price.
It may be through subdivisions or dual occupancy or something like that it may just be a little
spruce up or something. But I would look for a property where there was something that
I could do that would add value because that way I’m not relying on the markets. So I’m
finding an area that I don’t think is going to plummet, I think things are going to stay
steady or grow. Then I’m doing things to add value and also getting positive cash flow
at the same time. So most humans try and cancel things out.
We do either its positive cash flow or either its high capital growth. We can’t have your
cake and eat it too, but what if we could. It would just require you to be more of an
active investor and to do some pretty serious research. So Maria I hope that helps answer
your question. Yes there are more positive cash flow properties in areas that aren’t
that crash hot. Yes there are negatively geared properties that are going to shoot up in value.
But they’re also positive cash flow properties in good areas and there’s also a lot of negatively
geared properties in areas that aren’t going to grow. So I would look for if it was me,
look for a good area with positive cash flow property or neutral that I could add value
to. Another benefit of being able to add value is not only can you get that equity, you can
get extra rent so you get a higher rental yield in the end. So I hope that has helped
your quick answer a question. If you’re listing today and you want to ask me or my cute little
cat Toby, okay it’s my son’s soft toy, if you want to ask a question then just email
me [email protected] or go to onproperty.com.au/contact. So until tomorrow remember that your long
term success is only achieved one day at a time.